Lease renewals are an opportunity for both the landlord and tenant to re-evaluate their relationship financially, situationally and review their agreements compared to the current market. As this opportunity approaches there are a lot of factors to keep in mind throughout the decision. Here we’ve laid out 5 questions to ask yourself as you begin the process of evaluating your lease for renewal.
1. When should I start the research for my renewal?
Start early--depending on the size of the space you lease, six to twelve months may be required for the process. Start by hiring a Tenant Rep Broker to review your lease, educate you about your market and create a strategy. There is no cost to you, as the Landlord has already built in and contemplated paying a commission whether you have a broker or not.
2. Is this space still serving my business?
Think ahead. What will your business look like in two to three years? Take advantage of vacant space in your project as it comes up. Ask yourself if the location serve the needs of your clients and your employees? Include space evaluation in your yearly business plan.
3. What are the financial benefits of using a tenant rep broker to renew?
Renewals are the most profitable deals for landlords. To maximize leverage, you need to hire a local tenant rep broker early, have them review your options both with your lease (renewal language/ lease expiration) and with viable outside building options. Moving is expensive, and landlords know this. If you can't fully execute a move with outside options then you are considered "captive" and it is unlikely you can generate maximum concessions. Waiting to the very end of your lease term to discuss renewal terms, is the worst thing you can do.
Using a tenant rep broker helps expose your company’s financial value to your landlord’s lease cash flow. Tenant Rep brokers do not get paid until a lease is executed, so having an exclusive relationship is key to keeping your broker's attention and allowing them to fully evaluate your options. It's not uncommon to hire your broker with more than 12 months left on a lease.
4. What are some market indicators to look out for when thinking about your renewal options in the next year?
Healthy rents have caused many buildings in Orange County to trade hands at record prices. Most likely, these sale prices are based on upward rent trends thus forcing the new ownerships to go after larger rents. Surrounding buildings notice the larger rents and higher lease "comps" and raise rents too. It's important to be informed about the ownership structure and debt as it is an opportunity to evaluate your firm's lease cash flow as a leverage tool.
5. What tools can I use to help me in the research?
Every major firm has a market report to give you the happenings of what the pulse of the market is. Your property manager can update you on any updates happening in your project. What’s exciting about TenantBase's new client only platform, is that our clients can search and educate themselves (or alongside their advisor) on their own time. This is critical in a world where business owners have little time to interview, hire, bring up to speed a new broker. Our advisors are transacting over 35 to 55 leases a year each, so we truly have a great pulse on the market and can evaluate your lease options anytime regardless of your term.
Don’t let renewals sneak up on you! It’s an important decision for your company and worth planning in advance for. As a tenant rep brokerage firm we give a non biased approach to the market when looking through options. If a renewal is within a year on the horizon we’d love to talk further about your company’s options. Feel free to reach out to our office here to get in touch with an advisor.